What Needs to Happen For the Recession to Be Short?

Question/Comment: I have heard guests on the NewsHour say that the recession will last into 2009 or 2010. What is it that is supposed to happen in this short time period that will result in happy days being here again?

Paul Solman: What’s SUPPOSED to happen is that low prices and low interest rates will induce people to buy once again – buy goods, buy services, buy stock. That in turn would induce companies to invest. And thus, the story goes, the economy turn around.

“Look,” those guests you are citing might say, “the economy will turn around sooner or later. Why not SOONER?”

To which skeptics might reply: “Why not LATER?”

The Dow Jones Industrial Average hit a peak of 381 in 1929. It didn’t return to that height until late 1954. On the other hand, no recession since World War II has lasted longer than a couple of years. The honest truth? No one knows. Because the turnaround will depend on a revival of global consumer and investor confidence. Who could possibly know when that will happen?